If your debt is too much to bear and your home is now at risk of foreclosure, a Chapter 13 may allow you to save your home. With a Chapter 13, struggling homeowners are given the opportunity to delay or prevent a foreclosure by paying off their mortgage arrears over time.
Depending on the circumstances, some homeowners are even able to eliminate second and third mortgages through a Chapter 13. However, not everyone is in the position to file a Chapter 13 and keep their home.
The Chapter 13 is specifically helpful for homeowners who have a steady source of income, who are behind on their mortgage, and need more time to catch up on their payments so they can keep their home.
Using a Chapter 13 to Save Your Home
Are you behind on your mortgage payments and having difficulty getting current? Perhaps you were unemployed for a short while, or perhaps you had a large automotive repair bill, or you had to pay for a family member’s funeral unexpectedly. We get it, sometimes bad things happen and financial emergencies can arise, making it impossible for us to pay the mortgage.
If you can’t get current on your mortgage and you’re now threatened with foreclosure, a Chapter 13 may be the best way to save your home, if not the only way.
When you file a Chapter 13, you enter a repayment plan where you pay all or a portion of your debts over 3 to 5 years. With a Chapter 13, you would be paying off your mortgage arrears (late or unpaid payments) over the course of the repayment plan.
The length of your repayment plan depends on your income, and how long it would take for you to pay off your debts. In order for you to be able to file a Chapter 13, you have to have enough income coming in to pay your mortgage and meet your other basic living requirements.
If you file Chapter 13 and complete all of the payments according to the terms of the plan, at the end of the repayment plan, you would keep your home and avoid foreclosure.
‘Stripping Off’ Second & Third Mortgages
If you have a second or third mortgage, it’s possible that the Chapter 13 may allow you to eliminate them. How can this happen? If your home is worth less than your first mortgage, you should not have enough equity to secure the second and third mortgages.
In this scenario, the bankruptcy court may agree to “strip off” the second and third mortgages; when the court does this, they are recategorized as unsecured debt. With a Chapter 13, unsecured debts are low on the priority list, meaning, they don’t usually need to be paid back in full, if at all.